PNB fraud: Charge of criminal breach of trust added to FIR

PNB fraud: Charge of criminal breach of trust added to FIR

PNB fraud: Charge of criminal breach of trust added to FIR

Ajay Sahai, Director General of exporters' body Fieo said that the RBI decision should have very little impact on trade as bank guarantee and letter of credit continue to be available.

"On a review of the extant guidelines, it has been chose to discontinue the practice of issuance of LoUs/LoCs for trade credits for imports into India by AD Category–I banks with immediate effect, " the central bank said in a notification. It said banks could continue issuing credit guarantees in the forms of letters of credits and bank guarantees, however, if certain parameters were met.

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Since the scandal was exposed, banks, the PNB, the regulator and the government have been bickering over how to settle the liabilities arising out of the fraud.

The RBI's action comes almost a month after PNB announced that it had detected fraudulent and unauthorised transactions at its Brady House branch in Mumbai.

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In a court filing on Tuesday, the bank said the Gitanjali Group of Companies, controlled by jeweller Mehul Choksi, allegedly defrauded it of Rs 7,080 crore. CBI and Enforcement Directorate officials are looking into the case. It will also put companies that have received credit based on LoUs in a spot, as they have to now repay their borrowings since there will no rollover of existing LoUs. These firms raised short-term credit from overseas branches of other Indian banks based on these LoUs. But, in the concerned case of Nirav Modi, neither the companies had enough funds to cover the debts, not the banks were paid with any service charge. "Banks are now exploring alternative instruments like bank guarantees which are typically used as a guarantee to raise loans from other banks", an official with a private sector bank said, requesting anonymity. The payment can also be made directly to the importer. "On January 29, 2018 (January 26 to 28 being public holidays), fraud was reported to RBI and complaint lodged with CBI Mumbai", he said. "The instrument (LoU/LoC) is being blamed, taking the focus away from the system failure in PNB", Sanjay Mandavia, an expert on trade finance who arranges buyers credit for SMEs, told The Telegraph.

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